Kalyan Jewellers IPO opens for Subscription: Should You Subscribe?

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The Rs 1175 crore Initial Public Offer (IPO) of Kalyan Jewellers India opened for public bidding on Tuesday and the issue will close on March 18.
Kalyan Jewellers is the largest pan India jeweller after Titan. According to its red herring prospectus, it will issue 9.19 crore shares worth Rs 800 crore. Promoters TS Kalyanaraman and Highdell Investments Ltd., an investment arm of Warburg Pincus, will sell 4.31 crore shares amounting to Rs 375 crore.
Ahead of the IPO, Kalyan Jewellers had raised Rs 351 crore from 15 anchor investors at the upper price band of Rs 87 per equity share. Government of Singapore, Sundaram MF, HDFC Life Insurance Company Limited and Calypso Global Investment Fund are some of the key investors in the anchor book.

Important Details:

Issue Open 16-18 March
Issue Size Rs 1175 Crore
Fresh Issue 9.19 Cr Shares valued at Rs 800 Crore
Offer for sale 4.31 Cr shares valued at 375 Crore
Face Value  Rs 10
Price Band Rs 86-85 per share
Minimum Lot Size 172 Shares
Listing on  NSE & BSE
Registrar Link Intime India Pvt

 

Company has recently allotted 9.88 crore equity shares to Highdell at Rs 50.58, so IPO price is slightly higher than that price band. Company said in an statement that company will use Rs 600 crore to fund working capital requirement and the rest will be used for general corporate purposes.

Kalyan Jewellers is one of the largest jewellery company in India based on revenue in FY20. It has pan India presence with 107 showrooms located across 21 states and union territories in India and also have an international presence with 30 showrooms located in Middle East as on December 31, 2020. Company makes gold, studded and other jewellery for regular wear to special occasions like weddings. Gold jewellery contributes nearly two-thirds of the revenue from operations.

Revenue Contribution from Products:

Revenue contribution location wise:

Financial Health of Company:

According to company’s prospectus,

  • In the financial year 2020, total 57.69% of its gross profit and and 47.81% of its revenue was contributed by operation outside South India.
  • From the very same source contribution stood at 49.92% of gross profit and 40.40% of revenue in the nine months of FY21 ended December.
  • In the financial year 2020, 51.29% of Kalyan Jeweller’s revenue came from outside tier-I cities and it rose to 53.08% in the nine months of FY21 ended December.
  • Kalyan Jewellers posted a loss of Rs 81.9 Crore in April-December because of Covid pandemic. Company had also availed moratorium to reschedule payments of certain loans.
  • The company has Rs 55.7 crore in long-term borrowings and Rs 2,635.5 crore in short term borrowings. Total debt, including metal gold loans, was Rs 3,667 crore as of December.

Risk Factors of Company:

  • Company’s valuations are quite high as compared to its peers companies which may create problem on performance.
  • The Corona pandemic had considerably effected company’s operations and also impacted business, revenues, financial condition and results of operations.
  • There is high chances that company may not be able to respond to customer’s demand and fulfil market trend on timely manner.
  • Its possible that company can have problem to maintain proper arrangements with their supplier and manufacturers.
  • High volatility in gold prices, seasonal nature of business, impact of government policies and high competition from both organised and unorganised players is also a matter of concern.
  • Company growing significantly in Middle east but all these operations are subject to regulations in the GCC countries.

Conclusion and our stand:

There is no doubt that company is growing really well and there business operation, revenues are doing good but at the same there has always been concern with Jeweller’s business. We have seen the cases of several other companies in the past and how they went from being a rocket share to dumping share. Jeweller business balance sheet and other aspects are not as rosy as they try to portray to public and there has always been some hidden points which Investors doesn’t know, specially the retail investors.

As of now, share market is in bull run so there wouldn’t be any surprise if stock give some listing gain but Investors need to think and decide why are they investing in IPO? Is there primary goal is to just get listing gain or they are looking for future prospective of company and want to invest for long term? If your objectives are clear then only you can make fair decision.

Here at Trendy Invest, we have a stand to not subscribe for Kalyan Jeweller’s IPO.

 

Disclaimer:

All the data presented in this analysis were taken from Company’s Red Herring Prospectus. All presented analysis is given for educational purpose and should not be taken as advise. Investors must consult their financial advisers before making any investment decision.

 

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